IGCSE Business Studies Unit 1 (Business Orgs) - Definitions

Needs

The basic goods or services that we need to survive, common to all human beings e.g water, food, shelter and clothes

Wants

The goods or services that we do not need to survive, but desire to have. For example entertainment and jewelry

Scarcity

The state of being scarce or in short supply compared to demand.

Opportunity Cost

The benefits foregone of the next best alternative that was not chosen when a choice had to be made.

Added Value

The selling price minus the cost of producing a good/service.

Primary Sector

The part of the economy that draws raw materials from the natural environment. Eg. Farming, fishing, mining

Secondary Sector

The part of the economy that transforms raw materials into manufactured goods to be sold to households or businesses. Eg. Factories, contruction

Tertiary Sector

The part of the economy that involves providing services rather than goods. Eg. Banking, retailers, estate agents, hairdressers

Private Sector

The sector of the economy where firms are set up and owned by individuals or groups of individuals who seek to make profits from their business activities.

Public Sector

The sector of the economy that is owned and controlled by the government, usually to provide goods or services that are beneficial to society. Eg. hospitals, police stations, fire stations

Entrepreneur

A person who starts and operates a business, taking risks in doing so e.g Steve Jobs,Bill Gates and Mark Zuckerberg

Business Plan

A document that shows the future plan of a business. It outlines the organisations objectives and how they plan to achieve them.

Business Start-up

A new business venture that is entering a market. They need to raise finance in order to fund their initial capital requirements.

Factors of production

The resources that are needed for the production of goods/services. These are categorised as Capital, Enterprise, Land and Labour.

The economic problem

The idea that there exists unlimited wants but limited resources, resulting in scarcity. Choices will have to be made as to how to allocate resources.

Specialisation

When people, businesses or countries concentrate on doing what they are best at

Division of labour

When the production process is split up into different tasks and each worker performs one of these tasks. It is a form of specialisation.

Business

An organisation that seeks to make goods and services from resources to sell to customers, usually to make a profit

Mixed Economy

An economy in which private sector exists in combination with a considerable amount of government intervention

Planned economy

An economy that relies on a centralized government to control all factors of production and to make production and allocation decisions

Market Economy

An economy where the factors of production are privately owned and decisions on the production of goods and services is determined by businesses according to customer preferences. There is little government intervention.

Capital (factor of production)

The tools, equipment, machinery, and factories used in the production of goods and services.

Goods

the physical/tangible products made by businesses that are sold to customers to satisfy their needs

Services

the intangible products that are provided by businesses. These are often actions or activities that the business performs for their customers

Capital employed

the total value of all long-term finance invested in the business. Calculated by the formula: Share Capital + Long term liabilities + Reserves (retained profit)

market share

a company's product sales as a percentage of total sales for that industry

Internal growth

the expansion of a business by means of increasing its scale of production. Eg by opening new branches, shops or factories (also known as organic growth)

External growth

Business expansion achieved by means of merging with or taking over another business, from either the same or a different industry

takeover

the acquisition of one business by another via the purchase of a substantial number of the voting shares of the business.

merger

when the owners of two or more businesses agree to join together to form a single organisation

Horizontal Integration

when a business merges or takes over another business in the same industry at the same stage of the production process (often a competitor)

Forward vertical integration

when a business merges or takes over another business in the same industry but at a later stage in the production process, closer to the consumer.

Backward vertical integration

when a business merges or takes over another business in the same industry but at an earlier stage in the production process, often a supplier.

Conglomerate integration/diversification

When one firm merges with or takes over a firm in a completely different industry.

Lateral integration

When a business merges or takes over another business that produce similar goods but are not in competition with each other

Economies of Scale

the factors that cause a business's average cost per unit to fall as output rises

Synergy

the increased effectiveness that results when two or more businesses work/join together. The combined business will be greater than the sum of the separate individual parts.

Sole trader

An unincorporated business owned and operated by one person

Partnership

An unincorporated business owned by 2-20 people

Deed of partnership

The legal contract signed by the owners of a partnership. The formal deeds specify the name and responsibilities of each partner and their share of any profits or losses.

Private Limited Company (Ltd)

An incorporated business which is owned by shareholders. Shares only sold privately, not on the stock market

public limited company (plc)

A large incorporated business whose shares can be freely bought and sold by members of the public on the stock market

Public Corporation

A government-owned organization that operates in the public sector. They provide goods and services that are beneficial to society

Business objectives

The stated, measurable targets and goals that a business works towards

Social enterprise

A business that is set up with the primary objective of helping society rather than to make a profit.

Stakeholders

The people/groups/organisation who are interested and/or affected by the activities of a business

Stakeholder conflict

When different stakeholder groups have different aims and objectives, which can be difficult for a business to satisfy at the same time.